LPL: DOL Rule Could Cut Gross Profit by 2 Percent

LPL: DOL Rule Could Cut Gross Profit by 2 Percent

The Department of Labor’s new proposed fiduciary rule for advisors to retirement accounts could impact LPL Financial's gross profit by 2 percent, said CEO Mark Casady said during an earnings call Thursday morning. But the impact to the firm's bottom line could be less, due to offsets from other product types that will be used and costs savings.

The estimate is based on the potential mix shift in the types of assets advisors may be allowed to use in brokerage retirement accounts, particularly away from alternatives.

But Casady argues that the 2 percent is de minimis.

“We believe the rule, as proposed, would not have a material, long-term, adverse financial impact to our business,” he said. “As written, the current version of the proposal would not permit sales of certain alternative investments in brokerage retirement accounts, but such sales represent a minor contribution to our overall financial performance.”

On the call, Casady fielded several questions from analysts concerned about the DOL proposal’s impact.

He also stressed the company’s long track record acting as a fiduciary in its advisory business. The firm began the shift to fees two decades ago, and launched its hybrid RIA platform in 2008. Now, 90 percent of the firm’s advisors are licensed to provide advisory and brokerage services to their clients. In 2014, 62 percent of gross asset sales were advisory, up from 45 percent five years ago.

“Our recurring revenue and well-developed multi-platform offering allows us to withstand industry changes quite well.”

During the first quarter, the firm attracted a record $5.2 billion in net new advisory assets, which excludes market movement. Assets under custody on the hybrid RIA platform grew 50.6 percent year-over-year to $104.8 billion.

LPL’s first quarter earnings per share of $0.64 beat analysts’ expectations by $0.02, but declined 7 percent from the first quarter 2014. An increase in regulatory charges, decline in cash sweep revenue and the timing of LPL’s advisor conferences lowered its adjusted earnings per share by 10 cents, said Dan Arnold, chief financial officer. Net revenue was $1.1 billion for the quarter, up 2 percent from last year.

The firm incurred $11 million in regulatory charges in the first quarter, including estimated losses related to past issues and legal and consulting fees during the period.

Casady said he expects regulatory charges to remain elevated in 2015, as they work through past issues. But he doesn’t expect those charges to be as high in other quarters as they were this quarter.  

The firm added a net 62 advisors during the quarter, bringing its headcount to 14,098.

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